SG Market (21 Feb 17)

The market is unlikely to be stirred by a largely conservative Budget 2017, which did not offer any sweeping tax changes or incentives for businesses or individuals. Hence, focus will shift back to 4Q earnings, where a slew of mid and large caps will release results starting on Wed, notably Sembcorp Marine, Genting Sp, best World on 22 Feb, City Dev, SCI, zion, CAO on 23 Feb and UOL, Golden Agri, Cosco on 24 Feb.

Regional bourses opened mixed in Tokyo (+0.2%), Seoul (+0.4%) and Sydney (-0.2%).Technically, the STI is trading within an upward channel bounded by topside resistance at 3,130 and support at 3,065.

Stocks to watch:
*Economy: This Budget is more conservative than we expected. There is some targeted help for marine & process industries as well as SMEs, but not broadly for most other sectors (services or manufacturing). A modest amount ($2.4b over 4 years) is set aside to support CFE strategies, of which $1.5bn is for topping-up of research and productivity funds. We see limited impact to growth, structurally or cyclically, and maintain our GDP forecast at 2.5% for 2017.

*Construction: From Budget 2017, the sector will benefit from the $700m of public sector infrastructure projects brought forward to 2017 & 2018. However, there was no deferment of foreign worker levy rates, which will be increased from Jul '17, and the 30% hike in water prices from this Jul could raise operating expenses for the construction sector, one of the largest users of water by industry.

*Land transport: Restructured diesel taxes to be implemented in Aug '17 would be volume-based with a duty of $0.10/litre, compared to the previous lump sum tax. While this would incrementally raise fuel costs, particularly for public buses and companies such as ComfortDelGro and SBS Transit, the impact on diesel taxis would be partially mitigated by a $850 reduction in the annual tax to $4,250.

*O&M: Foreign worker levy increases in the industry will be deferred by one more year.

*Wilmar: 4Q16 core net profit of US$589.5m (+70%), brought FY16 earnings to US$976.6m (-14.1%) but still beating US$813.4m estimate. Quarter revenue jumped 26.7% to US$11.9b, underpinned by higher commodity prices and increased sales volume, while EBITDA margin widened 0.6ppts to 7.1%. Bottom line was lifted by higher pretax profits from tropical oil (+94%), sugar (+68%) and oilseed & grains (+8%), as well as a tax benefit of US$23.3m arising from tax incentive for its Indonesian operations. However, final DPS was shaved to $0.04, bringing full-year payout to $0.065 (FY15: $0.08). NAV/share at US$2.285.

*Maxi-Cash: FY16 net profit surged 193% to $11.3m as revenue jumped 35% to $163.2m from higher interest income from the pawnbroking (+15.5%) and increased contribution from retail and trading of jewellery, watches and branded bags (+40.7%). Bottom line benefitted from operating leverage, and a relatively slower uptick in expenses. Final DPS of 1¢ brought FY16 DPS to 1.5¢ (FY15: 0.5¢). NAV/share at $0.1317. Operating environment remains challenging amid keen competition, volatile gold prices and weak retail sentiment but the group will continue to work on building its market leadership on store network, branding, innovation and operational efficiencies.

*Auric Pacific: 4Q16 net loss narrowed to $0.3m (4Q15: $19.2m loss), mainly due to a 57% reduction in other operating expenses to $18.2m (4Q15: $42.2m). Revenue slipped 1.4% to $106.4m on lower contribution from downstream operations due to closure of loss-making food outlets, although upstream operations maintained its growth momentum. Gross margin held steady at 42.1%. NAV/share at $1.34..

*OKP: 4Q16 net profit soared 315% to $8m on sharply higher revenue of $34.4m (+40.6%), driven by increased projects for both construction (+33%) and maintenance (+72%) segments. Gross margin widened 15.6ppts to 31.3% on improved project implementation and lower raw material costs. Bottom line was further boosted by its JV Lakehomes, which handed over units of LakeLife executive condos in 4Q16. Maintained final DPS of 0.7¢, but raised special DPS by 0.5¢ to 0.8¢, bringing full-year payout to 2¢ (FY15: 1.1¢). NTA/share at $0.3654.

*GLP: Acquired Shanghai Jingxi Business Consulting for Rmb350m (US$51m), implying a 1x P/B valution for the business. Through Shanghai Jingxi, GLP now owns 45.6% in Beijing Capital Farm. No specific details were released on these two companies.

*TriTech: Awarded a Rmb14.9m contract to design and install a wastewater treatment system for a plant with a capacity of 8,000 tpd in Wuhan, China.

*Profit warning:
- Debao Property Development
- A-Sonic Aerospace
- Natural Cool